CLO Equity Investors Are Pushing for CSAs

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Most people are just putting up ARP as the proposed CSA. The downside is that you're paying the primary, which obviously is not very attractive in a high rate environment like today. So there hasn't really been much of a fight there. I think it's been pretty orderly in fact. And so on the asset side of the CLO and the loan, kind of underlying loan market, obviously if the CSA ends up not being 26, then the CLO equity investors who receive kind of the excess spread of the residual from a CLO will be squeezed,. Right? You're paying 26 out to the debt. Got it. Can you give us a bit of background on why

The end of Libor is a little over a week away, and some US corporate borrowers are still racing to switch their floating rate loans to SOFR ahead of the 30 June deadline.

The loan market’s transition away from the old reference rate has been slow, but increasingly contentious in recent months. Borrowers, lenders and financial sponsors have tussled over the compensation offered to loan investors to swap into the lower-yielding SOFR benchmark.

In this week’s edition of Cloud 9fin, US deputy editor David Bell sat down with Dan Ko, a senior principal and portfolio manager at Eagle Point Credit Management to talk about how CLO equity investors rallied loan buyers to resist off-market SOFR amendments — as well as the challenges and opportunities in CLO equity as more deals exit their reinvestment periods.